Correlation Between ITUB4F and Taiwan Semiconductor

Can any of the company-specific risk be diversified away by investing in both ITUB4F and Taiwan Semiconductor at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ITUB4F and Taiwan Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ITUB4F and Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on ITUB4F and Taiwan Semiconductor and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ITUB4F with a short position of Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITUB4F and Taiwan Semiconductor.

Diversification Opportunities for ITUB4F and Taiwan Semiconductor

0.1

Correlation Coefficient

ITUB4F  Taiwan Semiconductor

Average diversification

The 3 months correlation between ITUB4F and Taiwan is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding ITUB4F and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor and ITUB4F is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ITUB4F are associated (or correlated) with Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of ITUB4F i.e., ITUB4F and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between ITUB4F and Taiwan Semiconductor

Assuming the 90 days trading horizon ITUB4F is expected to generate 13.45 times less return on investment than Taiwan Semiconductor. But when comparing it to its historical volatility, ITUB4F is 1.26 times less risky than Taiwan Semiconductor. It trades about 0.03 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  11,528  in Taiwan Semiconductor Manufacturing on April 24, 2025 and sell it today you would earn a total of  5,042  from holding Taiwan Semiconductor Manufacturing or generate 43.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

ITUB4F  vs.  Taiwan Semiconductor Manufactu

ITUB4F

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ITUB4F are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ITUB4F is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Taiwan Semiconductor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Semiconductor Manufacturing are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Taiwan Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITUB4F and Taiwan Semiconductor

The main advantage of trading using opposite ITUB4F and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITUB4F position performs unexpectedly, Taiwan Semiconductor can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Taiwan Semiconductor will offset losses from the drop in Taiwan Semiconductor's long position.

The idea behind ITUB4F and Taiwan Semiconductor Manufacturing pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.